Trade Is Good

Trade is good. It pressures companies to provide the best products to consumers, because if they don’t, someone else will. Consumers get more bang for their buck, companies get new markets, everybody wins.

The combination of hydraulic fracturing – a 60-year-old process – with horizontal drilling has made unthinkable amounts of natural gas economical to develop. This technological revolution has created tens of thousands of jobs and billions of dollars of wealth in sleepy towns in the shadow of the Appalachian Mountains.

The U.S. has produced so much natural gas that the price has plummeted – which is good for electricity consumers that use the fuel to heat their homes and keep the lights on – and the chemical industry that uses natural gas as a feedstock. The price of natural gas is so low that it often doesn’t make sense for natural gas extractors to develop the resource. It costs more money to develop natural gas than producers can sell it for, so many have been forced to delay projects.

However, the US has a huge opportunity to export some of our natural gas in the more easily transportable form of LNG. While protectionists claim that exports would raise the domestic price of natural gas, this increase will likely be minimal. Exporting LNG would give domestic producers a new market for natural gas and would allow them to resume drilling. Prohibiting exporting LNG isn’t protecting domestic prices, it is keeping natural gas in the ground and producers on the sidelines.

A recent Department of Energy report concludes that “Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports.”

Our Republican friends at the Energy and Natural Resources (ENR) Committee excerpted the best parts of the DOE study. In short, “the more LNG we export, the better for the U.S. economy. The biggest gains are in the short-term, so the sooner, the better.”

ENR’s GOP analysis of the export study:

The Obama administration’s report is a sophisticated and transparent study of the impacts of LNG export. It examines in detail 13 different scenarios, each based on different assumptions concerning the supply and demand of natural gas, as well as a range of export levels. In the final analysis, every single scenario was good for the United States.

• “Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports.” – p. 1

• “In all of the scenarios analyzed in this study, NERA found that the U.S. would experience net economic benefits from increased LNG exports.” – p. 6

The more LNG we export, the better for the U.S. economy. The biggest gains are in the short-term, so the sooner, the better.

• “Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.” – p. 1

• “Every scenario shows improvement in GDP over the No-Exports cases although in the long run the impact on GDP is relatively smaller than in the short run.” – p. 77

• “All export scenarios are welfare-improving for U.S. consumers. The welfare improvement is the largest under the high export scenarios even though the price impacts are also the largest.” – p. 55

• “Even with the highest prices estimated by EIA for these hypothetical cases, NERA found that there would be net economic benefits to the U.S., and the benefits became larger, the higher the level of exports.” – p. 12

The generalized gains…

• “The macroeconomic analysis shows that there are consistent net economic benefits across all the scenarios examined and that the benefits generally become larger as the amount of exports increases.” – p. 76

• “In conclusion, the range of aggregate macroeconomic results from this study suggests that LNG export has net benefits to the U.S. economy.” – p. 78

• “In all of these cases, benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers, and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices.”

…far outweigh the localized negatives.

• “The benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers, and hence LNG exports have net economic benefits in spite of higher natural gas prices.” – pp. 6-7

• “A higher natural gas price does lead to higher energy costs and impacts industries that use natural gas extensively. However, the effects of higher price do not offset the positive impacts from wealth transfers and result in higher GDP over the model horizon in all scenarios.” – p. 56

• “However, even in the year of peak impacts the largest change in wage income by industry is no more than 1%, and even if all of this decline were attributable to lower employment relative to the baseline, no sector analyzed in this study would experience reductions in employment more rapid than normal turnover.” – p. 9

• The cap-and-trade program in the Waxman-Markey bill would have caused increases in energy costs and impacts on EITE [energy-intensive, trade exposed industry] even broader than would the allowing of LNG exports . . . . “ p. 67

While natural gas prices are projected to increase domestically, the effects will be limited.

• “U.S. natural gas prices increase when the U.S. exports LNG. But the global market limits how high U.S. natural gas prices can rise under pressure of LNG exports because importers will not purchase U.S. exports if U.S. wellhead price rises above the cost of competing supplies. In particular, the U.S. natural gas price does not become linked to oil prices in any of the cases examined.” – p. 2

• “Natural gas price changes attributable to LNG exports remain in a relatively narrow range across the entire range of scenarios. Natural gas price increases at the time LNG exports could begin range from zero to $0.33 (2010$/Mcf). The largest price increases that would be observed after 5 more years of potentially growing exports could range from $0.22 to $1.11 (2010$/Mcf). The higher end of the range is reached only under conditions of ample U.S. supplies and low domestic natural gas prices, with smaller price increases when U.S. supplies are more costly and domestic prices higher.” – p. 2